3 Ways To Buy a House When It Feels Hopeless, According to Ramit Sethi
Buying a house is incredibly expensive these days. As of Q2 2024, the median sales price of homes in the U.S. is $412,300. This is about $30,000 less than it was two years ago, but real estate has been on an upward swing for decades now. This is part of what makes it a good option for many investors, but also a challenge for individuals looking to buy.
Check Out: 20 Best Cities Where You Can Buy a House for Under $100K
Learn More: Become a Real Estate Investor for Just $1K Using This Bezos-Backed Startup
Homes come with other costs, too.
If you’re financing, for example, you’re going to need to account for interest rates or annual percentage rates (APRs). According to the Federal Reserve Bank of St. Louis, the average fixed rate on a 30-year mortgage is 6.77%. This is significantly lower than what it was in, say, the 1980s, but it’s also more than double what it was even just a few years ago.
There’s also property taxes, homeowners insurance and, unless you’re going with a USDA or VA loan, likely a down payment requirement. All of these combined can make the dream of homeownership feel out of reach.
But even though it’s expensive, there are ways to buy a house even when it feels like you can’t. In a recent newsletter, Ramit Sethi included three simple ways to purchase a home in a situation that feels hopeless. These are the ways and how to make them work for you.
Wealthy people know the best money secrets. Learn how to copy them.
Move Somewhere More Affordable
Sethi’s first piece of advice is to move somewhere you can afford to buy property. Home prices throughout the country are expensive, yes, but they’re much cheaper in certain areas — especially some smaller towns in the Midwest or the South.
If real estate is too expensive to save up enough money for a sizable down payment or to comfortably make your monthly mortgage payments, consider moving. You’ll need to be flexible with location, of course, but this can help you achieve your goal of homeownership.
Sethi suggested running the numbers to figure out how much house you can afford and whether moving is your best option financially. Review the following:
Your estimated net worth including any assets, investments and savings
Your total household income (gross and net so that you know exactly how much money you actually have coming in)
Your current debts (as these should be weighed against your income and net worth
Your fixed costs (e.g., rent, debt payments, shopping, insurance, utilities and subscriptions)
Any regular investments you make each month
Any savings goals you’re trying to achieve (besides saving up for a down payment)
And guilt-free spending (like dining out or going to the movies)
In terms of figuring out affordability, there are a lot of budgeting rules you can follow. One is the 50/30/20 rule. With this, 50% of your monthly income should go toward needs, 30% goes toward wants and 20% goes toward savings and other future financial goals.
Choose a budgeting method that works for you and run the numbers. If it doesn’t make sense to buy where you are, but you’re okay with going where it’s cheaper, that might be your best bet.
Be Aware: 10 Worst Cities To Buy Property in the Next 5 Years, According to Real Estate Agents
Increase Your Income
Sethi’s next piece of advice is to dramatically increase your income. If you’ve run the numbers and you just can’t make things work, but you don’t want to move, doing this can make it easier to save up.
Boosting your income could mean many things. You could ask for a raise or promotion at work, or you could look for a job that pays better. If time allows, you could even take on a side hustle to bring in some extra money — and then put that toward debts or your down payment goals.
Increasing your income can also help if your monthly expenses are too high right now. While cutting back is generally a good start, that extra cash can reduce financial stress and free up cash for other things — like a house.
Keeping Renting, Invest the Difference and Buy Later
“Keep renting, invest the difference and decide if you want to buy later,” wrote Sethi in his newsletter.
If real estate is too expensive right now, or if you’re still working toward building up your income, this could be a better option.
If you’re feeling frustrated, Sethi suggested taking a step back and trying to view your situation dispassionately by asking yourself:
Why do you want to buy a house right now?
Do you absolutely need to buy one now or can it wait?
And how important is it to you that you buy?
If you’re in a situation where buying a house makes the most sense to you, then look for ways to increase your income and consider the possibility of moving. If not, Sethi advised waiting a while longer and investing as much as you can in the meantime.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 3 Ways To Buy a House When It Feels Hopeless, According to Ramit Sethi